The answer to the question, what are banks good for? is not at all obvious. Nor, as it turns out, is it the right question.
John Cassidy tries to answer the question by interviewing a variety of Wall Street executives, some of whom are quite critical of contemporary banking—or, at least, of the huge salaries and the size of the financial sector relative to the rest of the economy. And given how close Wall Street came to bringing the entire system down, and making everyone else pay to clean up the mess, and how quickly its profits rebounded, people would be justified in chanting “Banks, what are they good for? Absolutely nothing. Sing it again.”
But then Cassidy trots out the usual justification for banking:
Since the promulgation of Hammurabi’s Code, in ancient Babylon, no advanced society has survived without banks and bankers. Banks enable people to borrow money, and, today, by operating electronic-transfer systems, they allow commerce to take place without notes and coins changing hands. They also play a critical role in channelling savings into productive investments. When a depositor places money in a savings account or a C.D., the bank lends it out to corporations, small businesses, and families. These days, Bank of America, Citi, JPMorgan Chase, and others also help corporations and municipalities raise money by issuing stocks, bonds, and other securities on their behalf.
In one sense he’s right: there’s no form of economy most of us can imagine without some kind of banking sector, some way of channeling finances from one use to another.
But that’s the problem with Cassidy’s approach: the issue is not banking but capitalist banking. The problem in the United States and elsewhere is not banking per se but the way capitalist banks are intertwined with the rest of the capitalist economy. Changes in U.S. capitalism during the 35 years or so fueled the rise in capitalist finance (as it created both the supply of and demand for loanable funds), and changes in capitalist finance fueled the increasing inequality in the nonfinancial sectors of capitalism.
I raise this point because we can and should criticize the role of Wall Street in creating the conditions for the current crises and in profiting from the crises—and we should imagine and create a different economy, in which workers have the right to appropriate and distribute the surplus.
As I see it, such an alternative economy would also have a financial sector. It just wouldn’t be organized as capitalist banking.